Smart Procurement for More Effective Aid
More aid contracts being won locally could boost development and job creation in partner countries, according to a new report by the European Network on Debt and Development, Eurodad.
Eurodad’s report, ‘How to spend it’, argues that donor funds could have a greater impact on long-term sustainable development if companies from partner countries were winning a greater proportion of procurement contracts issued by donors to provide the goods and services on their development programmes.
"When you take a look at the aid contracts, two-thirds were awarded to firms in OECD countries," said Bodo Ellmers a Eurodad policy officer, referring to the Organisation for Economic Cooperation and Development, which has 34 members drawn from the nations of the developed world.
Eurodad is a network of 58 non-governmental organisations (NGOs) from 19 European countries that researches and works on issues related to debt, development finance and poverty reduction. Their report comes weeks before the fourth High Level Forum in Busan, South Korea, that will bring together thousands of representatives from the development community to consider how to make aid more effective.
The report includes case studies from Namibia, Ghana, Uganda, Bangladesh, Nicaragua and Bolivia and concluded that the effectiveness of aid is closely linked to procurement – the purchasing of goods and services by governments to implement public projects or provide public services such as infrastructure or health and education services.
Eurodad's calculations suggest that USD 69 billion annually, more than 50% of total official development assistance, is spent on procuring goods and services for development projects from external providers.
"It means that this aid contributes little to job creation, income generation for poor people or for building the capacity of local economies in developing countries," said Mr Ellmers.
But according to Paul Riembault, Head of the EuropeAid Capacity Development section, the existing procurement processes, while perfectible, do contribute to developing local capacities.
"Even international private companies and NGOs managing EC funded projects, are increasingly using experts and resources from developing countries," said Mr Riembault. "It is a slow process. Over the years we are seeing many of these experts setting up for their own companies and winning aid contracts.”
“By using local experts, we not only build sustainable capacities but we also ensure that our programmes are implemented with better knowledge of the local context," he added.
For Charles Gore, from the United Nations Conference on Trade and Development, there is "a double dividend if the aid is used to procure from local and regional firms.... Then this source of demand can be quite an important instrument of local economic development."
But Eurodad found that some donors say they cannot "buy locally" because of perceived inefficiency, corruption and financial risks posed by doing business in developing countries. According to Eurodad, that means it’s even more important that donors support developing countries' efforts to strengthen their procurement systems.
"Using country systems is the best way to ensure recipient ownership of aid. It also paves the way for domestic accountability," the Eurodad report stated.
Eurodad wants to see donors embrace ‘smart procurement’. In other words, they recommend donors impose conditions on contractors to ensure that aid contributes to sustainable development.
"Local spending is one thing, but local spending does not necessarily mean pro-poor spending," warned Ellmers. "The awarded companies have to take social and environmental criteria into account."